In recent years, blockchain surveillance (BS) companies have become increasingly important players in the cryptocurrency industry. Their business model consists in developing proprietary software that collects and interprets public data available on public blockchains and in selling their services to governments, banks, exchanges, and others that need access to this data. Usually, governments are interested in collecting information about financial crimes, while other institutional players use BS companies for compliance, especially with regard to customer due diligence. This article argues that BS companies can be understood as governmentalities.
Michael Rectenwald deploys this term to “refer to corporations and other non-state actors who actively undertake state functions.” The partnership between the state and BS companies threatens cryptocurrency users’ privacy and their ability to transact freely, away from the prying eyes of unwanted third parties.
Guilty until Proven Innocent
BS companies help institutional players and law enforcement implement the risk-based approach (RBA) developed by the Financial Action Task Force (FATF). According to the RBA, customers of regulated intermediaries such as cryptocurrency exchanges are first and foremost considered to be risks to the stability of the financial system; they are considered to be customers secondarily. Consequently, all customers are categorized based on the level of risk they pose to the ability of intermediaries to comply with regulations. Different BS firms may implement the RBA differently, but the classification of risk remains more or less constant: Severe risk is usually tied to indicators of child abuse, terrorist financing, and sanctions. Ties to dark-net markets and ransomware; use of ATMs; protocol privacy; peer-to-peer activity; use of cryptocurrency mixers, and indicators of gambling are normally classified as high or medium risk factors. The use of decentralized exchanges and smart contracts poses medium to no risk by default.
If customers are a risk, it follows that the burden of proof is on them to demonstrate their innocence by providing all the required information. When BS companies flag activity as suspicious, exchanges eventually start asking questions of their customers, and if the answers are unsatisfactory, customers’ funds are blocked. As is clear from the list provided above, an activity is considered risky not only when it is an obvious crime like child abuse but also when it is a legitimate and legal action such as exchanging cryptocurrencies peer to peer, using a crypto ATM, or taking advantage of protocol privacy.
It is important to not overstate what BS companies can do. Thanks to pseudonymity, personal identities are not part of the bitcoin blockchain: only public addresses that control some funds show up in the blocks. The very purpose of customer due diligence procedures is to attach real-world identities to addresses and to follow their trails. When users’ money is not in the custody of third parties, heuristic rules can be used to guess where the funds went; however, these rules can at best provide good approximations, not infallible results.
For example, according to the common input heuristic, if more than one input appears in a bitcoin transaction, then the same entity owns them. A similar assumption usually works in everyday life: if a payment consists of a ten-dollar bill and a five-dollar bill, it is reasonable to assume that the two bills are owned by the same person. However, this is not always true. In bitcoin, CoinJoin is a transaction scheme designed to break the common input heuristic with “an anonymization strategy that protects the privacy of Bitcoin users when they conduct transactions with each other, obscuring the sources and destinations of BTC used in transactions.”
The fact that the ambiguity of well-constructed CoinJoin transactions cannot be eliminated explains why BS companies classify them as medium risk, even if there is nothing illegal about them. It cannot be stressed enough that even the most basic transactions are interpretable in many equally legitimate ways and that every heuristic rule can be broken. Still, regulated entities and law enforcement often regard transactions as risky when they are flagged by BS company software, not understanding the inner workings of cryptocurrencies and of that software.
Comparing the FATF’s travel rule with BS companies’ know-your-transaction (KYT) platforms shows the arbitrariness of blockchain surveillance practices. On the one hand, the travel rule requires intermediaries such as exchanges that transact on behalf of their customers to share information about the sender, the receiver, and the amount of any transaction with each other, and, upon request, with law enforcement. While the travel rule harms privacy and pseudonymity significantly, it at least leaves no room for discretion—intermediaries must transmit and store only objective and definite data.
On the other hand, KYT software is developed by BS companies to help crypto institutions comply with regulations and to assist law enforcement in tracking criminals. KYT platforms analyze on-chain data and data from other sources through proprietary algorithms to follow funds and flag suspicious behavior. Differently from the travel rule, KYT software is developed behind closed doors, which means that the public does not know how it works or what kind of hidden heuristic assumptions it adopts. This is morally and legally problematic because closed-source software that is sold for profit and that implements arbitrary heuristic rules can be used to charge users with criminal behavior. Moreover, while most legislation treats crypto users as risks by default, it is not clear what legal tools are available to hold BS companies accountable when their obscure and arbitrary KYT software leads to judicial errors.
Unsubstantiated claims by BS companies can do great harm. The case of Roman Sterlingov is significant in this regard. US prosecutors accuse him of operating Bitcoin Fog, a centralized mixer that was used to launder money; because of this, he has been jailed since 2021 while awaiting his trial. However, according to his attorney, Tor Ekeland,
all the accusations are based on shoddy Blockchain forensics at desks 6,000 miles away from Roman’s home in Sweden. . . . The Government’s speculative accusations have no corroborating evidence. No eyewitnesses, no evidence at all of Roman operating a BitCoin tumbling onion site with a staff for a decade. No Admin logins, notes, communications, emails, nothing. After an extensive and expensive Government investigation spanning seven years that involved surveillance, wire taps, and pen traps on Roman.
This case shows how easy it is for an advanced legal system to ruin people’s lives using spurious blockchain surveillance tools.
Scamming the Scammer Who Longs to Be Scammed
As explained by Lysander Spooner, the state fears no rivals when it comes to scams: it is the only institution that is able to survive by taking other people’s property while presenting its actions as morally and legally legitimate. To tax property, the state needs to locate it by violating privacy and making the property visible to authorities. Therefore, it is not surprising that with cryptocurrencies the most important objective of regulations is to break pseudonymity as defined in the “Privacy” section of the bitcoin white paper. For example, know-your-customer (KYC) legislation requires regulated intermediaries to tie identifiers to cryptocurrency addresses: KYC-verified coins are more easily taxable than those that are not KYC verified.
BS companies are governmentalities whose main function is to help the state fight financial privacy. Their business model is unscrupulous because they sell closed-source software, based on shaky heuristic assumptions, to regulated intermediaries and to law enforcement; the latter may even use it to put people on trial, mostly for nonviolent “crimes” such as money laundering or tax evasion; moreover, given that BS is based on guessing, the risk of false accusations is astonishing, as shown by the case of Roman Sterlingov.
BS firms do not provide sound forensic tools; still, governments pay for their services with taxpayer money and deploy them in court. One cannot help but suspect that, from the perspective of law enforcement, the obscurity of surveillance software is a feature, not a bug, because it disproportionately favors the prosecution to the detriment of the defense.
For their part, these new governmentalities are happy to profit from the exploitation of the judicial system in favor of the state. BS companies present financial privacy in the domain of cryptocurrency as suspicious by default, and they profit by helping the state gain more control over white “markets” and reduce the scope of black (free) markets. This is a remarkable convergence of scheming interests.
About the Author
Andrea Togni is a Philosophy and history teacher at Liceo Medardo Rosso (Lecco). Article cross-posted from Mises.
Two Storms, One Harvest
Every food crisis in living memory has been a one-shock event. The 2008 price spike was a commodity bubble. The 2020 shortages were a logistics failure. The 2022 grain scare was a war on one exporter’s ports. Each time, the system bent, adjusted, and recovered, and each time the experts assured us afterward that global markets are simply too big and too diversified to fail.
What nobody in Washington seems eager to discuss is that 2026 is shaping up to be something the modern food system has never actually faced. Two independent shocks, one climatic and one geopolitical, are converging on the same harvest cycle at the same time. Not sequentially. Simultaneously.
Start with the weather. The Pacific Ocean is currently building toward what forecasters now openly call a record event. NOAA’s Climate Prediction Center puts the odds of at least a strong El Niño near 88 percent, with roughly two in three odds it reaches “very strong” status, the tier reserved for perhaps three or four events in the entire satellite era. Every major global model now projects a median peak in Super El Niño territory, and most of them project it exceeding the 2015-16 event, which until now held the modern record. Sea surface anomalies were already brushing the super threshold in mid-July, months before these events normally peak. The atmosphere has already shifted into El Niño mode, and the event is forecast to crest in late fall and early winter.
This is not about “climate change.” It’s about the standard cycles of weather, and the cycle we’re currently in is one that has likely devastated societies in the past. We’re better prepared as a society today, but not all Americans are equally prepared.
Serious households have started doing the quiet math on their own. Grocery bills tell part of the story, and the forecast maps tell the rest, which is why long-term food storage has moved from fringe hobby to mainstream line item in the family budget, with established suppliers like Heaven’s Harvest seeing demand from people who five years ago would have rolled their eyes at the idea. That instinct is not paranoia. It is pattern recognition, and the pattern is worth walking through carefully.
Editor’s Note: Heaven’s Harvest IS a sponsor, but the warnings of this article are real and would be written even if we didn’t have a survival food sponsor. With that said, those who take advantage of what they offer can use promo code “Patriot” for 15% off.
The Fertilizer Clock Is Already Running
While the Pacific warms, the second shock has been unfolding in the Strait of Hormuz. The conflict with Iran turned the world’s most important energy chokepoint into a contested waterway, and the consequences reach far beyond the gas pump. Roughly a third of global fertilizer trade moves through Hormuz, and the disruption sent urea prices up 86 percent year over year by March, with a 53 percent jump in a single month.
The World Bank projects energy prices rising about 24 percent in 2026 and fertilizer about 31 percent. By its own accounting, fertilizer prices ran 35 percent higher in the first five months of this year than the same period last year.
Here is the mechanism the nightly news will not explain. Fertilizer is not a grocery item. It is a time-delayed input. The nitrogen a farmer in Iowa or Punjab could not afford to apply this spring does not show up as a problem this spring. It shows up as a thinner harvest six to twelve months later.
The World Bank’s own food security brief concedes that the effects of reduced applications earlier this season “are likely to become visible only later in harvest outcomes.” Translate that from institutional language into plain English and it means this. The damage is already done, it is already in the ground, and we are simply waiting for it to arrive on the shelf.
Now check the calendar. Six to twelve months from the spring planting season lands us squarely in late 2026 and early 2027. Which is precisely when the strongest El Niño in the instrumental record is forecast to peak, bringing its signature droughts to Southeast Asia, Australia, southern Africa, northern Brazil, and South Asia, the very regions that grow the world’s rice, sugar, and oilseeds.
The World Bank warns openly that a strong El Niño “could disrupt multiple crop belts simultaneously” on top of the conflict-driven input costs. Their baseline projection assumes the Middle East disruptions ease by autumn. What in the last two years of Middle East history suggests that assumption is safe?
The System Has No Slack Left
The comfortable answer is that global markets always adjust. But adjustment requires slack, and the slack is gone. Global cereal production is expected to decline from last year’s records even before El Niño does its work. The UN World Food Programme, hardly a den of right-wing preppers, is calling this the most significant disruption to its supply chains since Covid and the invasion of Ukraine, and its supply chain director put the stakes bluntly.
Today’s supply chain challenges are tomorrow’s hunger crisis.
There is also a political dimension that markets cannot price. When food gets scarce, governments do not behave like economists. They behave like politicians. Export bans, hoarding mandates, and panic buying at the national level turned the modest rice shortfall of 2008 into a global crisis, and analysts are already warning that import-dependent nations are the first dominoes.
The 2015-16 Super El Niño, a far weaker event than what is now forecast, threw tens of millions into food stress across Africa and Asia. This one is projected to be stronger, and it arrives with fertilizer already rationed by price and shipping lanes already contested by missiles.
What Joseph Knew
Scripture does not treat preparation for lean years as faithlessness. It treats it as wisdom delivered in advance to those willing to act on it.
Behold, there come seven years of great plenty throughout all the land of Egypt: And there shall arise after them seven years of famine; and all the plenty shall be forgotten in the land of Egypt.
Joseph did not respond to that warning with a hashtag or a committee. He stored grain during the years of abundance, and when the famine came, Egypt stood while its neighbors begged. The lesson is not that famine is certain. It is that the time to prepare is precisely when preparation still looks optional.
Nobody who filled a pantry in a year of plenty has ever regretted it, and nobody standing in an empty aisle has ever been glad he waited for certainty.
None of this calls for panic, and panic is the enemy of sound judgment anyway. It calls for the same unglamorous prudence our grandparents considered ordinary. Keep some cash margin, know your local growers, and put real food in deep storage while it is cheap and available, because the entire arc of this story is that cheap and available is a closing window.
Families looking for a straightforward place to start can visit Heaven’s Harvest and use promo code Patriot for 15 percent off long-term storable food. The forecasts may yet soften, the strait may yet reopen, and we should pray they do. But hope is a fine thing to hold and a foolish thing to eat.
